The U.S. government on Monday filed an objection to Detroit's plan to deal with $18 billion of debt and exit the biggest municipal bankruptcy in the nation's history.
The filing addressed regulatory and monetary disputes between the city and two federal agencies. The Environmental Protection Agency (EPA) wants assurances that Detroit will follow its regulations under the adjustment plan. The filing said the city had not responded to so-called carve out language provided by the EPA.
While the plan acknowledged that the Department of Housing and Urban Development (HUD) holds an unimpaired, secured claim totaling $90 million, the federal agency disputes that amount.
Instead HUD pegged the aggregate amount of unpaid principal and interest on loan guarantee contracts at $111.9 million. The filing said discussions between the city and HUD were ongoing.
"To date however, the debtor has not yet agreed with HUD's figure and HUD therefore files this objection to preserve its right to contest the claim amount stated in the plan," the filing stated.
The U.S. objection joined several others that were filed on Monday in opposition to Detroit's plan, which will be the subject of a U.S. Bankruptcy Court confirmation hearing that starts in July. Judge Steven Rhodes must ultimately determine if the plan is fair and feasible.
Objections filed by Oakland, Wayne and Macomb counties centered around issues with Detroit's water and sewer department, which serves their residents.
"The city appears willing to engage in a game of chance, jeopardizing the (water and sewer department), and thus the region, by putting the (department's) operations at risk. It does so by, among other things, stripping necessary funds from the water and sewer system at the expense of a healthy (department)," Oakland county said in its objection.
Some bondholders and bond insurers also raised objections to the city's proposed treatment of more than $5 billion in outstanding Detroit water and sewer revenue bonds.
Bond insurance company Financial Guaranty Insurance Co (FGIC) protested the plan for failing to tap non-core assets of the city including the Detroit Institute of Arts.
A key component in the plan is $816 million pledged by philanthropic foundations, the institute and the state of Michigan, subject to legislative approval, to ease pension cuts for Detroit retirees.
FGIC said that deal "is not fair, equitable or reasonable."
Even UBS AG and Merrill Lynch Capital Services, a unit of Bank of America, filed a limited objection about wording in the plan concerning their hard-fought deal to settle interest-rate swap agreements at a much-discounted payment by the city of $85 million.
The investment banks said while Detroit has told them the plan does not mean to impair their secured creditor rights, the city has not agreed to add clarifying language to the plan.
(Reporting By Karen Pierog; Editing by Matt Driskill)